Time Dependencies Between Equity Options Implied Volatility Surfaces and Stock Loans, A Forecast Analysis with Recurrent Neural Networks and Multivariate Time Series

Sammanfattning

Synthetic short positions constructed by equity options and stock loan short sells are linked by arbitrage. This thesis analyses the link by considering the implied volatility surface (IVS) at 80%, 100%, and 120% moneyness, and stock loan variables such as benchmark rate (rt), utilization, short interest, and transaction trends to inspect time-dependent structures between the two assets. By applying multiple multivariate time-series analyses in terms of vector autoregression (VAR) and the recurrent neural networks long short-term memory (LSTM) and gated recurrent units (GRU) with a sliding window methodology. This thesis discovers linear and complex relationships between the IVS and stock loan data. The three-day-ahead out-of-sample LSTM forecast of IV at 80% moneyness improved by including lagged values of rt and yielded 19.6% MAPE and forecasted correct direction 81.1% of samples. The corresponding 100% moneyness GRU forecast was also improved by including stock loan data, at 10.8% MAPE and correct directions for 60.0% of samples. The 120% moneyness VAR forecast did not improve with stock loan data at 26.5% MAPE and correct directions for 66.2% samples. The one-month-ahead rt VAR forecast improved by including a lagged IVS, at 25.5% MAPE and 63.6% correct directions. The presented data was optimal for each target variable, showing that the application of LSTM and GRU was justified. These results indicate that considering stock loan data when forecasting IVS for 80% and 100% moneyness is advised to gain exploitable insights for short-term positions. They are further validated since the different models yielded parallel inferences. Similar analysis with other equity is advised to gain insights into the relationship and improve such forecasts.